Peter Jones: Greek tragedy is a warning to us all

AUSTERITY we face is nothing to what it may have been under a currency union in an independent Scotland, writes Peter Jones.

An elderly man stands by the National Bank of Greece's empty cash machines in Athens yesterday. Picture: Getty
An elderly man stands by the National Bank of Greece's empty cash machines in Athens yesterday. Picture: Getty

Greece’s financial tragedy – it’s gone beyond being a crisis – vividly demonstrates why the Better Together campaign was absolutely right, and the Yes campaign horribly wrong, about the independence prospectus we were asked to vote on last September. There would have been no currency union and no escape from austerity. And, once again, the Scottish Government has obligingly provided proof.

Please note, I am not arguing that an independent Scotland would have been in the same disastrous plight as Greece, nor that Scotland would have been dependent on the same bailout lifeline as Greece and under foreign orders to slash public spending to maintain vital cash transfusions.

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I am saying, however, that the Greek tragedy illustrates all too horribly the risks that our nearest neighbours – England, Wales, and Northern Ireland – would have faced if they had agreed to a currency union as specified in the independence manifesto, as well as the risks to Scotland.

Greece is an independent country in a currency union with the other 18 EU eurozone member states. Its national debt has reached about €330 billion (£234bn) or about 1.8 times the size of the country’s wealth-creating capacity (GDP).

Its primary budget (tax revenues versus bills payable before debt interest) has turned from surplus to deficit, meaning that the government is not earning enough money to pay its bills which include public sector wages and pensions.

Apart from the €1.6bn it is due to repay the International Monetary Fund (IMF) today, in the next three months, the Greek government has to repay about €17bn in total to various commercial banks and the European Central Bank (ECB). It cannot meet these payments without a further bailout.

The EU’s political will to keep the euroshow on the road now looks to have shifted from seeking compromise to keep the Greeks in, to setting such a hard line on Greece that no other country will risk voting for a Syriza-type anti-austerity political party and causing another crisis. There is a possibility of that in Spain later this year.

Almost regardless of the referendum on Sunday, the die now looks to be cast – Greeks must accept the austerity demanded by the EU, the IMF and the ECB or quit the euro. The consequences for the Greeks of the former will be harsh, but of the latter, they will be near-apocalyptic in the short-term.

No, an independent Scotland would not have faced the same catastrophe. The point is that in any currency union, there are risks. The designers of the euro currency union were as confident as Alex Salmond was about a sterling union during the referendum. The risks, they believed, when euro notes and coins started circulating in 2002, were minimal. Much as he argued during the referendum, they believed that the benefits to trade and to member state economies of a common currency were massively more significant.

Now not just the risks, but the huge costs involved when mistakes occur, are abundantly obvious. One risk is that a member government in the currency union mismanages its public finances, or its economy, or both, and needs bailed out of trouble. A second is that a member state can be hit by an external economic shock over which it has no control that also necessitates a bailout.

It is stupid to pretend that a Scotland-rUK currency union would not have faced those risks. It is also stupid to argue, as the independence manifesto did, that these risks can be reduced to a minimum by having agreements to limit, say, debt exposure and solemn signing of no bailout treaties. These were signed in the eurozone and yet there have been national bail-outs.

Imagine if we had been trying to negotiate a currency union now. Voters south of the Border would be looking at a Scotland which had a deficit in 2013-14 (on the Scottish Government’s own figures) equal to 8.1 per cent of GDP (versus the UK deficit of 5.6 per cent of GDP) and which could have only widened on the basis of a manifesto promising more welfare and other public spending and lower business taxes.

And that was including North Sea revenues that year of £4bn. Now the Scottish Government has published figures estimating that the very best oil revenues over the next four years will be £2.8bn a year, and could be as low as £1.2bn. And we were told during the referendum that the worst they would be would be about £3bn in a year, but probably would be much better, perhaps as much as £7bn a year.

And still Nicola Sturgeon’s press officers, when asked about this vast discrepancy, continue to pump out earth-is-flat tripe about oil being a bonus and not the basis of the Scottish economy. Garbage – every last penny, and then a lot more that don’t exist, would be needed to keep paying teachers’ and nurses’ wages.

And you can forget about using tax levers to boost onshore revenues to compensate for the lost offshore revenues caused by the external shock of halved crude oil prices. The only study published by the Scottish Government said it would take decades to produce a couple of billion.

No, any voter south of the Border, recalling that Scotland produced the RBS and HBoS bankers that blew up the UK economy, viewing the chaos descending on Greece and the prospect of €198bn of European taxpayers’ money in loans to Greece being repaid going up in smoke, would crucify any politician who proposed a currency union with a Scotland with a balance sheet as shot full of holes as it is now.

And full fiscal autonomy/responsibility? You are having a laugh, surely? More like full fiscal austerity.

In fact, austerity is absolutely inescapable. Given that we would be getting maybe £2bn a year in oil revenues instead of the £7bn or so per annum promised a year ago, it would have to be harsh.

The fact is that the austerity we will hear about in George Osborne’s budget on 8 July is light and bearable compared to the suit of nails we would have to wear under any other constitutional arrangement.